How Do You Turn A Bear Market Into A Bull Market?

So we’re 16 years into this deep, dark 21st century bear market. Share prices just seem to keep falling. It’s been ages since any of my investments made a profit. Surely now’s the time that stocks start to recover steadily, as the next bull market gets under way? Surely, the years of famine will turn into years of feast?

Maybe not, because it seems that global stock markets have missed their cue.

Momentum is the strongest force in investing

To understand what’s going on, you need to understand the strongest force in investing. Momentum.

Momentum is a funny thing. It’s as if global equity markets are a huge supertanker stacked full of money, trillions of dollars worth of cash. Turning this ship around takes a huge amount of time and energy.

There’s a lot of talk about greed and fear in investing. But I view it more as optimism and pessimism. I think investors are more pessimistic than at any time since the early 1980s.

This negativity has been reinforced by one disaster after another. Buying shares? You must be off your rocker. People talk about gold, about bonds, and about staying in cash. You know what happens when you try stock investing: just think of the tech crunch, then the Credit Crunch, and then the Eurozone crisis. Even China, which people have been beginning to think of as the new engine of world growth, is slowing.

We will just have to be patient

However, looked at from a neutral perspective, there are a lot of positives to draw from the world economy. Emerging markets such as China, India and Malaysia are still pushing ahead. Europe is recovering well, buoyed by QE and a weak euro. And the UK has its highest ever numbers in employment. The Great Recession that followed the Credit Crunch is finally over.

It’s just that it takes ages for hope to build a momentum of its own. Anyone with money from Manchester to Mumbai has woken up after the Christmas break to see their investments down on the year, yet again. OK, that’s enough, they think. Let’s get out of shares completely. That’s why we’re seeing crash after crash in the markets.

Positive thoughts from financial commentators and investment bankers won’t make any difference. I think even Goldman Sachs has yet to discover a bull market-generating machine. We just have to wait patiently for confidence to build.

So just how do you turn a bear market into a bull market? Well, my answer to this question is a little prosaic, but very true. You build it…slowly.

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Prabhat has no holding in any of the companies mentioned in this article. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.